Archive for November 24th, 2009

A friend who works in energy consulting (specifically focusing on carbon offsets) has sent me a thought-provoking and troubling paper on cap-and-trade legislation and the weaknesses of the carbon market/offset system it creates. Larry Lohmann, the offer of the paper, casts a political economy lens on this system and critiques it in light of the lessons the economic crisis has taught (some of) us- the paper is long, but you can get the gist from the 2 or 3 bolded sentences on the margin of each page.

The main critique of the cap and trade system is that it engenders creation of

highly abstract commodities, partly through quantist procedures characterised by suppression of unknowns, contested quantifications and lack of transparency.

The abstraction is typical of neoclassical economics, which as we’ve discussed in critiques of GDP, seeks to quantify everything in money so that it can create commodities. The paper cites Polanyi a number of times, who was the foremost political economist that spoke against creation of fictitious commodities. The problem with the commodified carbon (as with MBS et al.) is that quantification likely obscures more than it reveals.

Market architects abstract from the question of how those reductions are made. This distances carbon markets from the climate problem in the same way that historical labour markets, in inventing abstract labour, disconnected from and modified the significance of various concrete useful human activities of livelihood.

 These markets and the false equivalencies they entail ignore the reality that

it matters not only how much emissions are cut but also how they are cut…cap and trade is designed to treat emissions-reduction measures as equal, regardless of whether they are likely to contribute to unquantifiable but important positive global synergisms.

What are the consequences of going forward with such a system?

First, the fact that there can be no firm basis for offset accounting opens the way for unresolvable conflicts over estimates of carbon credits…

A second consequence of offsets’ reliance on an unworkable, self-invalidating
calculation methodology is that it undermines the possibility of effective regulation…

A third effect of an untenable quantist methodology is that it stores up an asset valuation problem similar to that of sub-prime mortgage-based securities before the 2007-08 financial crash.

Lohmann charcacterizes the emphasis on quantification and markets as part of a neoliberal ideology extending into the realm of climate change mitigation. He notes that this new conventional wisdom appears to have won out, as

Within the insular, tightly-knit professional climate mitigation community,
experts are constantly passing through revolving doors between private carbon trading consultancies, government, UN regulatory agencies, the World Bank, environmental organisations, official panels, trade associations and energy corporations.

This message is difficult to stomach. I am naturally inclined to solutions that seek to quantify everything, because I tend to value simplicity and elegance. I’m beginning to realize, however, that most of the time complexity trumps simplicity, and that economics seems to favor simplicity to a fault.

I also have a hard time reading this paper without thinking that Waxman-Markey might actually be detrimental in the long run, but entrenching far from good enough policies. Perhaps the recently invograted 350 ppm movement can allay some of these concerns by making the caps aggresive enough to force real, long-term change, regardless of what market participants want. I’m not optimistic that it can succeed in raising (lowering) the bar, though, because it seems even a weak bill like W-M will have a hard time passing the Senate.

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